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LVMH - record year as international travel resumes

Revenue rose 17% to €79.2bn for the year on an organic basis, reflecting double digit increases in all products...

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Revenue rose 17% to €79.2bn for the year on an organic basis, reflecting double digit increases in all product areas. The group's biggest division, Fashion & Leather Goods saw a 20% increase in revenue to €38.6bn, which was a record. Brands including Louis Vuitton and Christian Dior performed well.

The next biggest division, Selective Retailing saw a 17% jump in revenue Thisreflected a "strong" rebound in Sephora stores, where further investment in the brand's online offering was made.

The group hired 39,000 people in the year, with 15,000 in France.

Profit from recurring operations was up 23% to €21.1bn. The group generated free cash flow of €12.9bn and had net financial debt of €9.2bn.

January has ''started well'' for LVMH and the group said it's confident in its ability to grow in the new financial year.

LVMH intends to propose a dividend of €12 per share in April.

LVMH shares fell 1.0% following the announcement.

View the latest LVMH share price and how to deal

Our view

LVMH has had a great end to its financial year. The return of travel and the reopening of China have provided powerful boosts. Footfall in China is now 40% behind pre-pandemic times. That sounds dire, but is a significant improvement on the minus 85% seen as recently as December.

The fashion conglomerate's ability to churn out growth quarter after quarter comes down to its biggest superpower. Brands. Louis Vuitton, Christian Dior, TAG Heuer watches and Hennessy cognac are status symbols, and revenue is much stickier than for traditional retailers. It also helps that LVMH's mega-wealthy customer base are able to weather an economic downturn better than some. Spending is more reliable when things take a turn for the worst.

Having high-net worth individuals as your core demographic also means the sky-high ticket prices simply don't deter these shoppers. And those higher price points are supported by what we view as genuine creative and marketing superiority at LVMH. We're not alone in thinking LVMH has a best-in-class stable of labels.

Being able to charge more and repeatedly encourage high demand means LVMH's operating margins are in the mid-twenties. A feat engineered by the group's enormous scale. We're also aware that LVMH overspent on marketing in the second half of last year, when compared to revenue growth. This is unlikely to be a recurring theme, which leaves room for margin growth in the new financial year.

Adept management is a serious asset too. The group has Bernard Arnault, CEO, and now the richest person in the world, for the best part of five decades, to thank. He is also the group's largest shareholder, his family owns 48% of the shares, which probably explains the focus on long-term success.

Debt is worth keeping an eye on. The root cause of the balance sheet stretch was the acquisition of jewellery giant Tiffany. The deal seems to be bearing fruit, but debt reduction is likely to be a focus in the short term.

LVMH's more resilient customer base and higher margins means it generates billions in free cash flow. In turn, that helps it to pay dividends. The prospective yield of 1.7% doesn't shoot the lights out but we view LVMH shareholder returns as less vulnerable than some other businesses. As ever, no dividend is guaranteed.

We think LVMH can thrive over the long-term and could provide a compounding opportunity thanks to its unrivalled stable of brands. But keep in mind the group's valuation is relatively demanding these days, which increases the risk of ups and downs.

LVMH key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

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Article history
Published: 27th January 2023